Several groups filed a lawsuit challenging the constitutionality of the Dodd-Frank Act in June, and three states have joined the case, alleging that the law’s liquidation authority is unconstitutional.
Under Title II of Dodd-Frank, the secretary of treasury and the Federal Deposit Insurance Corp. are given the authority to liquidate failing financial firms. After the Treasury secretary orders the liquidation of a firm, the company has 24 hours to convince a federal court to overturn the decision. If the firm is unable to convince the court, or the court cannot decide in the firm’s favor within the 24 hour timeframe, the Treasury’s decision is upheld, according to the Wall Street Journal.
Attorneys general of Oklahoma, Michigan and South Carolina, the states party to the lawsuit, maintain that the law puts too much power into the hands of the federal government.
“Title II eliminates all meaningful judicial review and due process,” Scott Pruitt, Oklahoma’s attorney general, and Alan Wilson, South Carolina’s attorney general, said, the Wall Street Journal reports. “Dodd-Frank’s elimination of investors’ rights directly harms our states because state pension funds are partly invested in financial companies…Dodd-Frank further limits the authority of the courts by prohibiting them from reviewing whether the Treasury secretary’s decision was constitutional or whether the liquidation is actually necessary to protect financial stability.”
Ammon Simon, policy counsel for the Judicial Crisis Network, echoed those sentiments, saying that the provision “creates economic uncertainty, hurting our economy in the process.”
“Why would companies expand or invest without knowing their regulatory burden?” Simon said, according to Forbes. “And how can they predict what Dodd-Frank’s unchecked bureaucrats will do?”
Simon added that the “uncertain regulatory regime” also negatively impacts community banks, which provide credit availability to small businesses.
“The constitutional challenge to Dodd-Frank is based on the idea that this damage to community banks and the economy, which still manages to favor a select few, embodies Federalist 47’s warning about ‘[t]he accumulation of all powers, legislative, executive and judiciary, in the same hands,’” Simon said, Forbes reports. “It is the ‘very definition of tyranny.’”